Press Release Details

Q2 Holdings, Inc. Announces Second Quarter 2015 Financial Results

August 6, 2015

Total second quarter revenue of $26.3 million, up 37 percent year-over-year

AUSTIN, Texas--(BUSINESS WIRE)-- Q2 Holdings, Inc. (NYSE:QTWO), a leading provider of secure virtual banking solutions to regional and community financial institutions, today announced results for its second quarter ending June 30, 2015.

Second Quarter 2015 Results

  • Revenue for the second quarter of $26.3 million, up 37 percent year-over-year and up 9 percent sequentially.
  • Non-GAAP gross margin for the second quarter of 47.1 percent, up from 44.2 percent one year ago. GAAP gross margin for the second quarter of 46.2 percent, up from 43.5 percent one year ago.
  • Adjusted EBITDA for the second quarter of negative $2.0 million, an improvement from negative $2.5 million one year ago and negative $2.1 million in the first quarter. GAAP Net Loss of $5.0 million dollars for the period.

“I’m pleased with another quarter of strong financial results,” said Matt Flake, president and CEO of Q2. “Our single platform differentiates us in the market, and continues to have a meaningful impact with financial institutions large and small. Our continued growth is a testament to our ability to create industry-leading products and successfully deliver those products to customers.”

Second Quarter 2015 Highlights

  • Exited the second quarter with approximately 5.7 million registered users, up 44 percent year-over-year and up 9 percent quarter-over-quarter.
  • Signed two Tier 1 financial institutions: a Top 25 Credit Union from the Midwest, and First Republic Bank in the West region of the United States.
  • Brought two Tier 1 customers live in the quarter: American Airlines Federal Credit Union, a $5 billion dollar credit union in Texas, and Trustmark Bank, a $12 billion dollar bank in Mississippi. Q2 has now brought three of the five Tier 1 customers signed in 2014 live on the Q2 platform.
  • Recognized as a NAFCU 2015 Innovation Award Winner for the Q2 single platform solution. The NAFCU Innovation Award is the credit union industry’s most recognized competition for groundbreaking solutions, and further solidifies Q2’s reputation for innovation.

Financial Outlook

Q2 is providing guidance for its third quarter 2015 as follows:

  • Total revenue of $27.4 million to $27.8 million, which would represent year-over-year growth of 31 percent to 32 percent.
  • Adjusted EBITDA of negative $2.5 million to negative $2.0 million.

Q2 is providing guidance for the full-year 2015 as follows:

  • Total revenue of $107.4 million to $108.0 million, which would represent year-over-year growth of 36 percent to 37 percent.
  • Adjusted EBITDA of negative $9 million to negative $8 million.

Conference Call Details

Date:

    August 6, 2015

Time:

5:00 p.m. EDT

Hosts:

Matt Flake, CEO / Jennifer Harris, CFO

Dial in:

US toll free: 1-877-201-0168

 

International: 1-647-788-4901

Conference ID:

81841330
 

Parties interested should join the conference call at least 10 minutes before start time to ensure the line is connected. A live webcast of the conference call will be accessible from the investor relations section of the Q2 website at http://investors.q2ebanking.com/.

A replay of the webcast will also be available at this website on a temporary basis shortly after the call.

About Q2 Holdings, Inc.

Q2 Holdings, Inc. (Q2) is a leading provider of secure, cloud-based virtual banking solutions headquartered in Austin, Texas. Q2 enables regional and community financial institutions, or RCFIs, to deliver a robust suite of integrated virtual banking services and engage more effectively with their retail and commercial account holders who expect to bank anytime, anywhere and on any device. Q2 solutions are often the most frequent point of interaction between its RCFI customers and their account holders. As such, Q2 purpose-built its solutions to deliver a compelling, consistent user experience across digital channels and drive the success of its customers by extending their local brands, enabling improved account holder retention and creating incremental sales opportunities. To learn more about Q2 visit q2ebanking.com.

Use of Non-GAAP Measures

Management believes that adjusted EBITDA and non-GAAP gross margin are useful measures of operating performance because they exclude items that Q2 does not consider indicative of its core performance. In the case of adjusted EBITDA, Q2 adjusts net loss for such things as interest, taxes, depreciation and amortization, stock-based compensation, loss from discontinued operations and unoccupied lease charges. In the case of non-GAAP gross margin, Q2 adjusts gross margin for stock-based compensation. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net loss and GAAP gross margin, or other financial measures prepared in accordance with GAAP. A reconciliation to the closest GAAP measures of these non-GAAP measures is contained in tabular form on the attached unaudited condensed consolidated financial statements.

Q2’s management uses adjusted EBITDA and non-GAAP gross margin as measures of operating performance; to prepare Q2’s annual operating budget; to allocate resources to enhance the financial performance of Q2’s business; to evaluate the effectiveness of Q2’s business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of Q2’s results with those of other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and in communication with our board of directors concerning Q2’s financial performance.

Forward-looking Statements

This press release contains forward-looking statements, including statements about the ability of Q2’s single platform to differentiate Q2 in the market and to have a meaningful impact on financial institutions and Q2’s ability to create industry-leading products and successfully deliver those products to customers and Q2’s quarterly and annual financial guidance. The forward-looking statements contained in this press release are based upon Q2’s historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates or expectations will be achieved. Factors that could cause actual results to differ materially from those described herein include risks related to: (a) the risk that Q2 will face increased competition in its existing markets and as it enters new sections of the market with Tier 1 customers and new products and services; (b) the risk that the market for Q2’s solutions does not grow as anticipated; (c) Q2’s increased focus on selling to larger Tier 1 customers may result in greater risk and variability in Q2’s business and sales results; (d) the challenges and costs associated with selling, implementing and supporting Q2’s solutions, particularly for larger customers with more complex requirements and longer implementation processes; (e) errors, interruptions or delays in Q2’s service or Web hosting; (f) risks associated with breaches of security measures within Q2’s products, systems and infrastructure; (g) technological and regulatory developments; (h) the impact that a slowdown in the economy, financial markets, and credit markets has on Q2’s business sales cycles, prospects and customers’ spending decisions and timing of implementation decisions, particularly in regions where a significant number of Q2’s customers are concentrated; (i) the difficulties and risks associated with developing and selling complex new solutions and enhancements with the technical and regulatory specifications and functionality desired by customers and governmental authorities; (j) the difficulties and costs Q2 may encounter with complex implementations of its solutions and the resulting impact on the timing of its revenue from any delayed implementations; (k) the risk that Q2 will not be able to maintain historical contract terms such as pricing and duration; (l) the risks associated with managing growth and the challenges associated with improving operations and hiring, retaining and motivating employees to support such growth; (m) the risk that modification or negotiation of contractual arrangements will be necessary during Q2’s implementations of its solutions or the general risks associated with the complexity of Q2’s customer arrangements; (n) the risks associated with integrating acquired companies and successfully selling and maintaining their solutions; and (o) litigation related to intellectual property and other matters and any related claims, negotiations and settlements.

Additional information relating to the uncertainty affecting the Q2 business are contained in Q2’s filings with the Securities and Exchange Commission. These documents are available on the SEC Filings section of the Investor Relations section of Q2’s website at http://investors.q2ebanking.com/. These forward-looking statements represent Q2’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Q2 disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

       
Q2 Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
June 30, December 31,
2015 2014
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 69,369 $ 67,979
Restricted cash 713 829
Investments 49,150 20,956
Accounts receivable, net 6,987 5,007
Prepaid expenses and other current assets 2,614 2,695
Deferred solution and other costs, current portion 4,512 5,060
Deferred implementation costs, current portion   2,331     1,996  
Total current assets 135,676 104,522
Property and equipment, net 18,718 18,521
Deferred solution and other costs, net of current portion 8,590 7,159
Deferred implementation costs, net of current portion 5,523 5,378
Other long-term assets   1,187     1,226  
Total assets $ 169,694   $ 136,806  
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 14,648 $ 15,190
Deferred revenues, current portion 17,542 17,289
Capital lease obligations, current portion   344     408  
Total current liabilities 32,534 32,887
Deferred revenues, net of current portion 25,846 19,436
Capital lease obligations, net of current portion 1 167
Deferred rent, net of current portion 4,307 4,694
Other long-term liabilities   720     682  
Total liabilities 63,408 57,866
Stockholders' equity:
Common stock 4 3
Treasury stock (27 ) (20 )
Additional paid-in capital 180,352 143,337
Accumulated other comprehensive loss (50 ) (14 )
Accumulated deficit   (73,993 )   (64,366 )
Total stockholders' equity   106,286     78,940  
Total liabilities and stockholders' equity $ 169,694   $ 136,806  
 
 
Q2 Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands, except per share data)
                 
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
(unaudited) (unaudited) (unaudited) (unaudited)
 
Revenues $ 26,284 $ 19,158 $ 50,441 $ 35,992
Cost of revenues (1)   14,138     10,830     27,410     21,042  
Gross profit 12,146 8,328 23,031 14,950
 
Operating expenses:
Sales and marketing (1) 6,987 6,032 13,181 11,541
Research and development (1) 4,797 2,787 8,948 5,523
General and administrative (1)   5,344     4,058     10,469     7,776  
Total operating expenses   17,128     12,877     32,598     24,840  
Loss from operations (4,982 ) (4,549 ) (9,567 ) (9,890 )
Other income (expense), net   12     (119 )   (16 )   (326 )
Loss before income taxes (4,970 ) (4,668 ) (9,583 ) (10,216 )
Provision for income taxes   (12 )   (15 )   (44 )   (33 )
Net loss $ (4,982 ) $ (4,683 ) $ (9,627 ) $ (10,249 )
Other comprehensive loss
Unrealized loss on available-for-sale investments   (45 )   -     (36 )   -  
Comprehensive loss $ (5,027 ) $ (4,683 ) $ (9,663 ) $ (10,249 )
Net loss per common share:
Net loss per common share, basic and diluted $ (0.13 ) $ (0.14 ) $ (0.26 ) $ (0.42 )
Weighted average common shares outstanding, basic and diluted   37,232     34,068     36,437     24,143  
 
(1)Includes stock-based compensation expenses as follows:
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
Cost of revenues $ 238 $ 147 $ 416 $ 273
Sales and marketing 344 187 636 354
Research and development 217 122 379 229
General and administrative   840     612     1,530     1,130  
Total stock-based compensation expenses $ 1,639   $ 1,068   $ 2,961   $ 1,986  
 
 
Q2 Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
       
Six Months Ended June 30,
2015 2014
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (9,627 ) $ (10,249 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Amortization of deferred implementation, solution and other costs 2,117 2,030
Depreciation and amortization 2,556 2,030
Amortization of debt issuance costs 48 48
Amortization of premiums on investments 108 -
Stock-based compensation expenses 2,961 1,986
Other non-cash charges (7 ) 51
Changes in operating assets and liabilities   2,175     (10 )
Cash provided by (used in) operating activities 331 (4,114 )
Cash flows from investing activities:
Net purchases of investments (28,340 ) -
Purchases of property and equipment (2,321 ) (2,468 )
Decrease in restricted cash   116     -  
Cash used in investing activities (30,545 ) (2,468 )
Cash flows from financing activities:
Proceeds and payments on line of credit, capital leases, and financing obligations, net (2,435 ) (4,656 )
Proceeds from issuance of common stock   34,039     87,469  
Net cash provided by financing activities   31,604     82,813  
Net increase in cash and cash equivalents 1,390 76,231
Cash and cash equivalents, beginning of period   67,979     18,675  
Cash and cash equivalents, end of period $ 69,369   $ 94,906  
 
 
Q2 Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share data)
                 
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
(unaudited) (unaudited) (unaudited) (unaudited)
GAAP gross profit $ 12,146 $ 8,328 $ 23,031 $ 14,950
Stock-based compensation   238     147     416     273  
Non-GAAP gross profit $ 12,384   $ 8,475   $ 23,447   $ 15,223  
 
Non-GAAP gross margin:
Non-GAAP gross profit $ 12,384 $ 8,475 $ 23,447 $ 15,223
GAAP revenue   26,284     19,158     50,441     35,992  
Non-GAAP gross margin   47.1 %   44.2 %   46.5 %   42.3 %
 
GAAP sales and marketing expense $ 6,987 $ 6,032 $ 13,181 $ 11,541
Stock-based compensation   (344 )   (187 )   (636 )   (354 )
Non-GAAP sales and marketing expense $ 6,643   $ 5,845   $ 12,545   $ 11,187  
 
GAAP research and development expense $ 4,797 $ 2,787 $ 8,948 $ 5,523
Stock-based compensation   (217 )   (122 )   (379 )   (229 )
Non-GAAP research and development expense $ 4,580   $ 2,665   $ 8,569   $ 5,294  
 
GAAP general and administrative expense $ 5,344 $ 4,058 $ 10,469 $ 7,776
Stock-based compensation   (840 )   (612 )   (1,530 )   (1,130 )
Non-GAAP general and administrative expense $ 4,504   $ 3,446   $ 8,939   $ 6,646  
 
GAAP operating loss $ (4,982 ) $ (4,549 ) $ (9,567 ) $ (9,890 )
Stock-based compensation   1,639     1,068     2,961     1,986  
Non-GAAP operating loss $ (3,343 ) $ (3,481 ) $ (6,606 ) $ (7,904 )
 
GAAP net loss $ (4,982 ) $ (4,683 ) $ (9,627 ) $ (10,249 )
Stock-based compensation   1,639     1,068     2,961     1,986  
Non-GAAP net loss $ (3,343 ) $ (3,615 ) $ (6,666 ) $ (8,263 )
 
Non-GAAP net loss per share, basic and diluted
Numerator:
Non-GAAP net loss $ (3,343 ) $ (3,615 ) $ (6,666 ) $ (8,263 )
Denominator:
Weighted average common shares outstanding, basic and diluted   37,232     34,068     36,437     24,143  
Non-GAAP net loss per share, basic and diluted $ (0.09 ) $ (0.11 ) $ (0.18 ) $ (0.34 )
 
Pro forma non-GAAP net loss per share, basic and diluted
Numerator:
Non-GAAP net loss $ (3,343 ) $ (3,615 ) $ (6,666 ) $ (8,263 )
Denominator:
Weighted average common shares outstanding, basic and diluted 37,232 34,068 36,437 24,143
Plus: assumed conversion of preferred stock to common stock (1)   -     -     -     6,228  
Denominator for pro forma net loss per share, basic and diluted   37,232     34,068     36,437     30,371  
Pro forma non-GAAP net loss per share, basic and diluted $ (0.09 ) $ (0.11 ) $ (0.18 ) $ (0.27 )
 
Reconciliation of net loss to adjusted EBITDA:
Net loss $ (4,982 ) $ (4,683 ) $ (9,627 ) $ (10,249 )
Interest (income) expense, net (12 ) 119 16 326
Depreciation and amortization 1,353 1,031 2,556 2,030
Stock-based compensation 1,639 1,068 2,961 1,986
Provision for income taxes   12     15     44     33  
Adjusted EBITDA $ (1,990 ) $ (2,450 ) $ (4,050 ) $ (5,874 )
 

(1) Assumes conversion of all outstanding shares of preferred stock, on an as-if-converted basis, at the later of January 1 of each year or the date of issuance of the preferred stock.

 

Source: Q2 Holdings, Inc.

Media Contact:

Red Fan Communications

Kathleen Lucente, 512-551-9253

C: 512-217-6352

kathleen@redfancommunications.com

or

Investor Contact:

Q2 Holdings, Inc.

Bob Gujavarty, 512-439-3447

bobby.gujavarty@q2ebanking.com